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Li Lei, Harbor Business Observer

The controversy surrounding Dongfangxuan (01797.HK), Yu Minhong and Dong Yuhui is still circulating. This transaction of favor + business has undoubtedly aroused the indignation of many investors, especially small and medium shareholders.

In a subsequent explanation, Yu Minhong said: "Everyone knows my image in the past three months. I suffered huge losses due to online violence. There was an endless stream of rumors about me on the Internet, such as conspiracy, stinginess, and employee abuse. It was as if I had become the most vicious capitalist and the most vicious boss in the history of the world."

In other words, Yu Minhong's boldness and generosity are partly due to his own image. However, whether such a statement is logical and in the interests of the majority of shareholders is obviously a matter of great controversy.

As we all know, Yu Minhong has repeatedly caused controversy due to his speeches in recent years, and people have long been accustomed to it.

As for the fan conflict over the issue of Oriental Selection and Dong Yuhui, this may be a normal preference in the online society. Some people like Dong Yuhui, or think that Dong Yuhui has contributed the greatest value and is a stingy boss. Isn't such prejudice normal?

Some people like the straightforward Yu Minhong, believing that he built a bridge between Oriental Selection and Dong Yuhui, successfully built the New Oriental Empire back then, and quickly transformed into today's big brother in selling goods. What's wrong with that?

Xu Zhiyuan and "13 Invitations" often talk about prejudice. Looking at the world with prejudice and looking at others with prejudice has always been the norm in society.

So, is it that Yu Minhong is too obsessed with making everyone like him, or does he not like so-called differences of opinion, that is, he has a narrow understanding of online reviews? The answers will be completely different.

As a public figure and the head of a listed company, Yu Minhong should look at the social balance between different netizens and different oppositions with a more self-consistent, inclusive and compatible vision and perspective.

If it is true as happened with Wahaha and Nongfu Spring a few months ago, relevant measures should be taken to protect one's own rights and interests for such extreme behavior, and legal means should be resorted to as soon as possible.

In recent years, relevant departments and laws and regulations in my country have been continuously rectifying the definition of cyber violence. Starting from August 1, the "Regulations on the Governance of Cyber ​​Violence Information" came into effect. The "Regulations" clearly state that network information service providers should, under the guidance of the national cyberspace administration and relevant departments of the State Council, refine the classification standards and rules for cyber violence information, establish and improve measures such as a database of cyber violence information characteristics and a database of typical case samples, and strengthen the identification and monitoring of cyber violence information.

Back to investors’ expectations for Oriental Selection, on the one hand, the stock price is a true reflection of real money, and on the other hand, it is an analysis of the company’s future prospects by investment banks.

On August 2, the share price of Dongfang Zhenxuan surged by 14.67%. In the past week, the company's share price has gradually recovered from the previous haze. After the ups and downs of bad news, returning to rationality is the general trend.

However, in the longer term, the stock price trend of Oriental Selection has undoubtedly disappointed investors. Since December 7, 2023, the company's stock price has fallen by more than 60%.

This shows that investors still have doubts about the company's mid- and long-term development, its future direction, core competitiveness, profitability, etc.

It is worth mentioning that the stock price has fallen so much in about eight months, and the timeline coincides with the "Little Composition" incident in mid-December last year. If the period was affected by cyber violence as Yu Minhong mentioned, Dongfang Zhenxuan and Yu Minhong should have reported the case in time.

How big and strong was the online bullying that caused the stock price of Oriental Selection to plummet? Or was it just Yu Minhong's excuse and imagination?

After all, even Yu Minhong himself said that there might be factors such as competitors and capital manipulation behind the scenes, but these are just speculations and there is no evidence yet.

It is normal to guess that investors' concerns about Oriental Selection stem from the double-edged sword concerns they have about the chaos in internal management, the lack of governance capabilities of senior executives, and the company's operations being heavily dependent on one person after the Xiaozuowen incident.

The lack of investor confidence and the continued decline in stock prices were finally confirmed eight months later.

So after breaking up with Dong Yuhui, what do the investment banks and securities firms think about the company's prospects?

Goldman Sachs downgraded the rating of Oriental Selection from "neutral" to "sell", and cut the target price by 55% from HK$15.9 to HK$7.1. Goldman Sachs said that after Dong Yuhui's resignation and the sale of "Walk with Hui", the recent growth outlook has become uncertain, and the low operating leverage may further put pressure on the profit recovery.

Goldman Sachs maintained its forecast for fiscal 2024 roughly unchanged, but lowered its revenue forecast for 2025 to 2027 by 25% to 26% based on a 32% to 36% reduction in its GMV forecast to reflect the negative impact of Dong Yuhui's departure and weaker GMV growth in the remaining business from June to July. In addition, the bank lowered its adjusted net profit forecast for 2025 to 2027 by 39% to 40%.

Shenwan Hongyuan downgraded Oriental Selection's rating to "overweight" and lowered the company's adjusted net profit forecast for fiscal years 2024 to 2026 to 853 million/1.003 billion/1.074 billion, respectively, from the original profit forecast of 1.226 billion/1.266 billion/1.426 billion. It said that since the company has entered a relatively stable growth phase and has become a pure live e-commerce company after selling its education business to its parent company New Oriental, it uses free cash flow valuation instead of the original classification sum valuation method, and the target price has been slashed from HK$35.79 to HK$13.9.

China Merchants Securities pointed out that Yuhui Tongxing contributed about 50% of Dongfang Zhenxuan's Douyin channel GMV and recorded a net profit of RMB 141 million. It is expected that the spin-off of Yuhui Tongxing will cause Dongfang Zhenxuan's core net profit to decline by 21% and 41% in fiscal years 2024 and 2025, respectively, and GMV is expected to decline by about 17% and 36%, respectively. Maintain its neutral rating, and cut the target price from HK$14 to HK$8.5.

China Merchants Securities believes that the spin-off with Huitong will likely help ease the market's long-standing concerns about the risks of Dongfang's selection of key personnel, but the GMV and profit prospects remain unclear.

CICC lowered the target price of Oriental Selection by 68% to HK$11.5. CICC expects that the adjusted net profit forecast of Oriental Selection in fiscal year 2024 will drop by 53% year-on-year to approximately RMB 511 million, corresponding to an adjusted net profit margin of 8.3%, a year-on-year decline of approximately 15.9 percentage points, mainly due to the increase in the proportion of self-operated products with lower gross profit margins.

It is not difficult to see that whether it is the selling of the well-known foreign investment bank Goldman Sachs or the sharp reduction of target prices by many Chinese brokerages, it shows that the breakup with Dong Yuhui has had a huge impact and greatly affected the company's profitability. (Produced by Harbor Finance)